When Can You Request PMI to Be Removed?

Private Mortgage Insurance (PMI) is an insurance policy required by lenders when a homebuyer makes a down payment of less than 20% on a conventional mortgage. Its purpose is to protect the lender against losses if the borrower defaults on the loan. PMI enables homeownership with a lower upfront investment, but it adds an additional cost to the monthly mortgage payment. Borrowers often seek to remove PMI to reduce their housing expenses once they have built sufficient equity.

Automatic Termination of PMI

Federal law, the Homeowners Protection Act (HPA) of 1998, outlines conditions under which lenders must automatically terminate PMI. This act applies to most residential mortgages originated on or after July 29, 1999. Under the HPA, PMI must be automatically cancelled when the loan’s principal balance is scheduled to reach 78% of the original value of the home, based on the initial amortization schedule.

Another provision for automatic termination occurs at the midpoint of the loan’s amortization schedule, even if the 78% loan-to-value (LTV) ratio has not yet been reached. For instance, on a 30-year mortgage, the midpoint would be after 15 years. For automatic termination to occur under either of these conditions, the borrower must be current on their mortgage payments. Lenders must also provide annual disclosures informing borrowers about their rights regarding PMI cancellation and the projected date for automatic termination.

Borrower-Initiated PMI Cancellation

Borrowers can request to cancel PMI before the automatic termination points are reached, once they have achieved 20% equity in their home. This translates to a loan-to-value (LTV) ratio of 80% or less, based on the original purchase price or the appraised value at the time of purchase, whichever was lower. To be eligible for this borrower-initiated cancellation, a good payment history is required, meaning no payments 30 days or more past due in the last 12 months, and no payments 60 days or more past due in the last 24 months. The borrower must also certify that there are no junior liens, such as a second mortgage, on the property.

An increase in the property’s market value can also help a borrower reach the 80% LTV threshold sooner, enabling an earlier cancellation request. In such cases, the lender may require a new appraisal to confirm the current market value of the home. This appraisal is paid for by the borrower. Some lenders may also require the loan to have seasoned for a certain period, often two years, before considering a cancellation request based on increased property value.

Certain loan characteristics, such as loan modifications or loans categorized as “high-risk,” can affect PMI cancellation eligibility. If the property’s value has declined below its original value, or if there are existing liens, it may prevent or delay the ability to cancel PMI. PMI cancellation based on current value requires adherence to specific lender guidelines.

The Request Process

Initiating a request for PMI cancellation involves specific steps to ensure the lender processes it efficiently. The first action is to contact the loan servicer directly to inquire about their precise requirements and procedures for PMI removal. Servicers often have specific forms or a preferred method for submitting such requests.

A formal written request letter is required, clearly stating the intention to cancel PMI. While the servicer has access to payment records, they may ask for confirmation that the borrower has maintained a good payment history. If the cancellation request relies on an increase in property value, a new appraisal will be necessary. The borrower is responsible for the cost of this appraisal, and the lender usually requires it to be ordered through an approved appraiser to ensure an unbiased valuation.

After gathering all necessary documentation, including the written request and, if applicable, the appraisal report, these should be submitted to the loan servicer. Keep detailed records of all communications and documents sent. Lenders typically have a regulatory timeframe, often around 30 days, to review the request and notify the borrower of their decision. If a request for cancellation is denied, the servicer should provide a reason, allowing the borrower to understand the specific issue and determine appropriate next steps, such as addressing the identified reason or waiting for automatic termination.